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By Julien Ponthus and Thyagaraju Adinarayan
LONDON, March 19 (Reuters) - A falling currency, doubts
about the UK government's response to the coronavirus crisis and
fresh fears of leaving the European Union without a trade deal
are prompting investors to ditch shares of companies exposed to
the local economy.
The FTSE 250 index, home to mid-sized UK stocks, has
sharply underperformed British blue chips and other major
European bourses since the coronavirus broke out.
The index has fallen by 43% from its Feb. 19 peak, compared
with a 33% drop for the FTSE 100 index and 36% for the
pan-European STOXX 600.
The losses are also a bit sharper than in France, Italy and
Spain, which have already implemented extreme measures such as
entire city lockdowns.
This trend could be seen on Thursday as well: By
mid-afternoon the FTSE 250 was down 3.5% while most European
bourses and the FTSE 100 were in positive territory.
Some market commentators believe the fall is partially
attributable to the UK's response to the crisis.
"Initially markets were more concerned about the effect of
the virus on economies outside the UK, but the implementation of
more stringent containment measures in the UK over the last week
has made clear that the domestic economy will also take a hit,"
said Mike Bell, global market strategist at J.P. Morgan Asset
Management.
Joshua Mahony, senior market analyst at IG, wrote to his
clients on Monday that investors had doubts about the
government's strategy.
TRIPLE WHAMMY
"With the domestically focused FTSE 250 being hit hard this
morning, there is clearly a perception within the trading
community that the UK strategy is riskier and could result in a
more significant economic impact despite the current lack of a
hardline shutdown seen elsewhere".
Some well-known names such as bus operator National Express
, Restaurant Group, pub operators Mitchells &
Butlers and Marston's have now all lost more
than two-thirds of their value this week alone.
"A number of mid-caps have also issued downbeat earnings
outlook statements this week and in some cases cancelled planned
dividend payments, which has added to shareholders’ woes," AJ
Bell Investment Director Russ Mould said.
The consensus view is that it's a triple whammy: the virus
response, faltering sterling and the never-ending Brexit saga.
"Concerns of a no trade deal Brexit are resurfacing as the
June deadline to extend is approaching while UK and EU
negotiations appear to have made little progress", said Emmanuel
Cau Head of European Equity Strategy at Barclays.
The weakness is also a ripple-effect of the falling pound,
which hit lows on Wednesday not seen since 1985 and exacerbates
the spread between the FTSE 100 and the FTSE 250.
"It’s been quite an extreme drop in the currency, and with
so much of the revenue in the FTSE 100 coming from outside of
the UK, the weaker currency is often a supportive factor",
argued Craig Erlam, senior market analyst at Oanda.
(Reporting by Julien Ponthus with Thyagaraju Adinarayan;
Editing by Hugh Lawson)
